Transocean, the owner and operator of the Deepwater Horizon drilling rig, and the U.S. Department of Justice (DOJ) have agreed that the company will pay a record $1 billion civil penalty for alleged violations of the Clean Water Act following a blowout at the rig in April 2010, which fouled the Gulf of Mexico with the largest oil spill in U.S. history and killed 11 people.

Additional criminal penalties total $400 million and include a $100 million CWA criminal fine for a misdemeanor violation of well monitoring requirements during the temporary abandonment of the rig the day the blowout occurred. DOJ’s proposed civil settlement with Transocean is subject to public comment for a period of at least 30 days and final court approval.  

Claims will continue

The Transocean agreement follows a $4.5 billion agreement the DOJ struck with BP in November 2012.  BP owns the right to drill for oil in 5,000 feet of water at the Macando Prospect about 40 miles off the Gulf coast where Deepwater Horizon was located.  The BP fine included a $4 billion settlement of charges that BP was criminally negligent in the deaths of the 11 rig workers.  The fine was the largest criminal resolution in United States history. BP also paid $500 million to settle charges by the Securities and Exchange Commission that the company was guilty of civil securities fraud. 

The DOJ continues to pursue a civil action to hold BP, Transocean, and other defendants liable for natural resource damages under the Oil Pollution Act (OPA). A trial on liability matters is scheduled to begin in February 2013, during which the DOJ says it will seek to establish that the spill was caused by BP’s gross negligence. BP could face billions of dollars of additional exposure in the civil lawsuit. In addition, BP, Transocean, and other companies face additional charges leveled by Alabama and Louisiana and hundreds of private claimants.

Environmental projects

Under the 2012 RESTORE Act, 80 percent of the $1 billion civil fine against Transocean must be used to fund environmental and economic projects in the Gulf states. A large portion of the $400 million criminal penalty will also be directed toward wetlands improvement projects as well as research, development, education, and training to improve oil spill prevention and response in the Gulf.

OPA

“The resolution will result in the Department of Justice concluding its criminal investigation of Transocean and settling it claims for civil penalties against the company relating to the spill from BP’s Macondo well,” wrote Transocean in a statement. The agreement allows Transocean to satisfy it $1.4 billion debt over 5 years beginning with an initial payment of $560 million in 2013.

Transocean does not dispute that the agreement with the DOJ excludes potential claims associated with OPA’s Natural Resources Damage Assessment (NRDA) process. Assessment of natural damage and the required remediation following a spill of the magnitude of Deepwater Horizon can take many years. Transocean points out that a district court held that the company is not liable under OPA for damages caused by subsurface discharge from the Macondo well. “Assuming that this ruling is upheld on appeal, Transocean’s NRDA liability would be limited to any such damages arising from the above-surface discharge,” stated the company. 

Click here for the settlement.